Cashbacks on home loans from New Zealand’s largest banks aren’t as high as they were earlier in the year, but banks are still using them to attract first-time home loan customers regardless of loan size.
Banks offer cashbacks, and sometimes other non-interest rate incentives, to people taking out home loans with them — although their generosity ebbs and flows depending on how competitive the housing market is.
The Reserve Bank (RBNZ) has started reducing the Official Cash Rate (OCR) in recent months, and mortgage lenders around the country have responded by lowering their home loan interest rates.
Banks are also starting to reduce their cashbacks, but mortgage advisors say there’s still money on the table when it comes to cashbacks.
Earlier this year many banks were offering 1% cashback on strong equity home loans, according to Key Mortgages’ Jeremy Andrews.
For example, $1 million of lending could’ve got a buyer a $10,000 in cashback at the beginning of the year.
But now, Andrews said there’s more variance amongst the banks and their cashbacks now, with most pulling cashbacks down to 0.9% and some even lower.
And for first home buyers, most of the banks will still do a cashback of $5,000 – even if first-home buyers have a low deposit or their loan amount is "only" $300,000 to $400,000.
“That's very attractive,” he said. “Historically, I don't recall banks doing such a good deal for first home buyers with small loan amounts and low deposits.”
Andrews said Kiwibank was also being competitive when it came to refinancing home loans.
Without a trust or a look-through company (LTC) involved, Kiwibank offers a free refinance service for either one or two or more properties at “quite a decent discount”.
Kiwibank will still pay a 0.9% cashback on top of that.
“I've refinanced someone who had four [properties] secured and it cost them $500 in legal costs,” Andrews said, adding that going through a lawyer directly would’ve cost several times more.
“They're being very competitive in the refinance market right now.”
He said all the banks have got caps as to what their maximum cashback is, ranging from anywhere between $10,000 to $25,000 depending on the bank and the loan amount.
BNZ’s cashback cap is “really pushing things up to $25,000” though advisers can often negotiate exceptions too, according to Andrews.
“So you know if someone was refinancing or buying with $3 million of lending, $25,000 cashback is a pretty big carrot to dangle.”
Loan Market Mortgage Adviser Karen Tatterson is also seeing most banks offering 0.8% to 0.9% cashbacks depending on the loan amount and the structure of the loan.
“We are still getting, depending on the bank, about $5,000 cash contribution for first home buyers and the interest rates are all sitting around 5.79% for one year, 6.49% for six months and then they are reducing down after that,” she said.
“We’re not seeing clients fixing for long terms at this stage because obviously the expectation is that interest rates are going to go down at the end of the month so most people are fixing, they're doing six months or 12 months at this point in time.”
‘Highly competitive’
Sarah Falanitule, BNZ’s Head of Home Lending, said the bank is offering first home buyers a cashback of “at least $5,000” when they take out a new home loan of $250,000 or more.
“Beyond this special offer for first home buyers, we continue to provide competitive cashbacks across our home lending portfolio to help our customers and New Zealanders achieve their home ownership or refinancing goals,” she said.
A Westpac NZ spokesperson said all home lending applications at Westpac are assessed on a case-by-case basis, including eligibility for a cash contribution offer.
“Currently, first home buyers applying for a new Westpac home loan of $250,000 or more may be eligible for a $5,000+ cash contribution, they said.
David Jackson, ASB’s General Manager of Personal Banking Products, said ASB is currently giving first home buyers $5,000 cash when they take out a home loan of $200,000 or more.
“This cash contribution goes a long way to support first home buyers by helping them with some of the initial costs of home ownership, including solicitors and relocation costs,” he said.
An ANZ spokesman described the home loan market as “highly competitive” and said ANZ’s pricing offers reflected that.
“At times, ANZ does offer customers the ability to receive a cash contribution towards the costs of their housing transaction like solicitor or valuation costs, however the amount can vary depending on the elements of the loan and eligibility criteria applies,” he said.
ANZ currently has a $5,000 cash contribution offer for first home buyers with a minimum lending amount of $200,000.
Interest.co.nz also asked Kiwibank what cashback incentives it was currently offering to home loan borrowers.
The bank provided a link to their cash contribution terms page on their website which doesn’t supply Kiwibank’s current cashback rate.
Strings attached
Cashbacks do, however, typically come with strings attached.
"Normally they have a claw-back period of three or four years. So as long as you don't refinance within three or four years you get to keep the cashback. If you were to refinance [with]in three to four years then they'll take a percentage of it back," John Bolton, the founder and executive director of mortgage broker Squirrel Mortgages, noted in an episode of interest.co.nz's Of Interest Podcast.
"What they're effectively doing is they're really giving you upfront an interest rate discount. And then they're amortising over a period or three or four years, and that works out for them and I guess it works out for the borrower."
23 Comments
You are normally locked in for 2 to 3 years. I normally jump around banks looking for the best cashback. You do have to factor in the transaction costs of changing the mortgage (roughly a couple of grand depending if there are 1 property or there are multiple properties, borrowers, guarantees etc...).
The sales team of the banks definitely have authority to offer decent cash backs to secure new borrowers. Once you have come over they don't want to know you when your locked in term finishes and you deal with the rollover team which offer crap for you to stick around (I tried to contact the sales guy who bought me to ANZ one time and he basically fobbed me off).
Did manage to squeeze a little cashback to stay with Westpac for another 2 years last time I was free so is doable if you haggle.
"BNZ’s cashback cap is “really pushing things up to $25,000” though advisers can often negotiate exceptions too, “So you know if someone was refinancing or buying with $3 million of lending, $25,000 cashback is a pretty big carrot to dangle."
But who is the beneficiary of that dangling vegetable?
Let's assume that the $3m transferred mortgage gets a 0.85% dangling payment. Looks good. But even if the BNZ has to match-fund the new asset (which it probably won't have to) it's latest Annual Results show they could expect a Net Interest Margin of 2.37% - for just the first year of new Debt issuance = $71,100 against a transfer carrot payment of $25,500.
Now, that's probably an oversimplification, but the Banks aren't doing all this for nothing.
Banks won't be earning 2.37% on mortgage lending. That's an all in margin and probably driven by zero interest transaction accounts. Swaps on 12 month is like 4%, while 12 month retail rate is 5.7%, so 1.7% on paper... but ~1% on cash back, ~1% on broker commissions, less capital, less loss reserves.....
'when i started Uni in 2006 all the banks were offering $1000 to open a cheque account with them. I opened a cheque account with five banks, deposited the $5k in a term deposit, and added to it with summer pay checks. When I graduated in 2009 I had 20k. Enough for a deposit on a 3 bdrm home in Hamilton.
I didnt appreciate how easy it was back then.
Something doesn't quite smell right there. Each bank gave you $1000 to open a cheque account? It's more likely they gave you a $1k overdraft facility at 0 interest, so you still had to give it back to them.
Even still, 5k invested at 7% compounding for 3 years that would have generated what... about 2k in interest after tax. Still free money. But to be fair, 90% of your deposit (well done!) was actually from your summer income.
Makes sense. If you're sitting in a Bank, would you want to attract a negative equity loan and take on the risk? As a shareholder via KiwiSaver (and apparently an owner of Kiwibank via NZ government) ... I wouldn't want to see banks fighting take risky loans from another bank (maybe the opposite... 'here, take this loan')
Margins between the rate people fix their mortgage at in the 1-5 year bucket over the interest rate swaps where banks hedge their interest rate risk are heading back towards October 2023 - not to worry banks have it sorted through their aggressive drop in term deposit rates over the past month
Cash backs, fundamentally, simply ensure banks keep their fat margins on all their other lending.
Not much different to "sign up to this electricity plan - and get a free toaster". Existing customers are paying for that free toaster while they get squat in return.
Yes, we live in strange times. Same perverse incentive is on offer in the broader NZ economy.
Stay in your job long-term and you often get diddly squat. You even get overlooked for promotions in favour of external hires with shiny CVs. Switch jobs every 2 years and you get massive pay increases.
Meanwhile, it takes 2-3 year before employers start earning an ROI on training and wage costs on their new employees. How much of a drag has this been on NZ's economic productivity?
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.